There are limited options for reconstruction of bone defects resulting from congenital anomalies, trauma, infection, and oncologic resection. Over 2 million bone graft procedures are performed annually worldwide, with the clinical ?gold standard? being the use of autografts. Autografts fully heal and integrate, mediated by the periosteum, a thin layer of tissue and periosteal cells (PCs) surrounding bone. However, autografts are limited due to tissue availability and donor site morbidity. Thus, decellularized allografts are commonly employed. However, the limited ability of allografts, which lack periosteum, to remodel and integrate with the host tissue directly contributes to ~35% and 60% failure rates within 2 and 10 years of implantation. Periosteal-mediated healing is coordinated by a variety of contextual cues including matrix remodeling and adhesion and temporally defined release of paracrine factors. Our overarching hypothesis is that allograft healing will be dramatically improved by capturing critical healing cues in a tissue engineered periosteum (TEP). In the first funding cycle, we pioneered development of the TEP, which incorporates mesenchymal stem cells (MSCs) and OPs within hydrolytically degradable poly(ethylene glycol)(PEG)-based hydrogels, which are formed around allografts, similar to native periosteum. TEP shows outstanding promise to enhance murine allograft healing, resulting in a 300% increase in maximum fracture torque versus unmodified allografts at 9 weeks post-implantation. However, healing was plagued by fibrotic tissue, which results in the allograft limited to ~50% of autograft maximum torque. Fibrosis is consistent with poorly supported infiltration of TEP by host vessel/tissue, a limitation resulting from bulk hydrolytic TEP degradation which results in structural insufficiencies to support complete host-tissue infiltration. Thus, the focus of this renewal is a cellularly remodeled TEP, which enables localized, cell-demanded degradation while maintaining bulk hydrogel properties to support host-tissue infiltration. Three specific aims are outlined: Specific Aim 1: Tune TEP matrix cues (adhesive peptides and MMP-degradable crosslinks) to coordinate tissue infiltration and improve allograft healing. Specific Aim 2: Characterize TEP-mediated host-tissue recruitment. Specific Aim 3: Exploit the optimized TEP matrix to deliver peptides emulating periosteal paracrine cues as a translatable, acellular TEP. Successful completion of these Aims will significantly advance our understanding of how the periosteum coordinates allograft healing and the design of engineered periosteum to promote these bone regeneration processes. The developed material platforms and general approach are also readily applicable in other tissue engineering applications.